Thursday, March 05, 2009

Good Banks

The powerful governments of the world are talking about starting a “bad bank”. Their idea is that other banks would sell all their toxic assets to the bad bank, where they could be isolated. The other banks could then get on with being normal banks.

This is a very expensive solution as the government will become responsible for all the losses on the toxic assets.

We do not need another bad bank. There are already plenty of them. What we really need is a good bank. I hope that a private business will take the opportunity presented by the current uncertain situation to establish a good bank.

We need a bank that does not claim money entrusted to it belong to it; that does not record deposits as assets of the bank.

We need a bank that does not take money that belongs to one person and loan it to another without permission.

We need a bank that does not rely on mathematical models or commission agents to make decisions about lending, but trusts relationship with borrowers and knowledge of their character.

We need a bank that does not chase profits from shonky speculations or random risk taking.

I have described how a good bank would function in Bank Deposits and Loans.

If a good bank started, depositors would move their money to it. Other good banks would start when they saw how well the good bank was doing. Good banks would spring up everywhere, as depositors look for a safe haven. The world would see a dramatic shift of money from the existing banks to the good banks.

The true nature of our existing banks would be revealed. They would be left holding their toxic assets and depending on funding by government bailouts. Everyone would see that they really are bad banks, and avoid them like the plague.

No comments: